Is your private health policy a 'junk fund' ripping you off?

Health funds are charging families up to $3,000 a year to cover them for treatment in a public hospital, something they are entitled to for free under Medicare.

The so called junk policies are being subsidised by taxpayers via a government tax subsidy worth up to $800.

And when health fund members go to use some of these policies they have to pay an excess of $500 a year. If they were public patients they would get their care in the same hospital for free.

Health funds continue to offer these policies even though their peak organisation is fighting to stop public hospitals charging health funds when they treat privately insured patients.

The government subsidy of these policies continues even though Health Minister Greg Hunt says he doesn't want public hospitals to aggressively harvest privately insured patients and charge their health funds when they treat them.

Health funds don’t want members to use their policies. Picture iStock.

The only advantage of these policies is it may offer the patient a choice of doctor but in rural areas and in an emergency there is unlikely to be any choice anyway.

Australian Medical Association president Dr Michael Gannon wants the policies scrapped and says it's a "bit too cute" of the health funds to argue public hospitals should not charge health funds when they treat insured patients but then offer public hospital only policies.

"They are marketing policies they don't want people to use, surely this points to the need for a thorough Productivity Commission investigation into the value of private health insurance," says Australian Health and Hospitals Association chief Alison Verhoeven.

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Private Healthcare Australia chief Rachel David says many young people make a conscious choice to purchase a lower priced product because they are healthy or avoiding the Medicare Levy Surcharge.

"There are also people who live in regional areas who have a particular specialist, but the only option is to be treated in the local hospital, which is a public hospital, and with PHI they can have continuity of care," she said.

Finder.com says there are there are 33 basic health fund policies available in the market from 22 health funds (5 restricted) and the market is growing, there were only 15 in 2014.

Ten of these policies only cover people in a public hospital.

There are a further 23 health fund policies that cover people in a private hospital but exclude coverage for many routine treatments including cardiac, pregnancy and birth services and joint replacements.

Abigail Koch from Compare the Market says in 2017 a total of 1.6% of health insurance policies purchased through Compare the Market were public hospital only policies, up from 1 per cent in 2016.

Another 5 per cent of people who took out health cover through Compare the Market bought policies with major restrictions on treatment in private hospitals.

Ms Koch says there was a marked decline in the proportion of 'limited' policies purchased through Compare the Market in 2017 (6.5 per cent) down from 14.3 per cent in 2016.

"This alludes to greater consumer understanding of the limitations of these types of policies," she said.

Former health minister Sussan Ley pledged to abolish these junk policies in 2016 but Health Minister Greg Hunt has now caved to health fund pressure to keep them claiming people with these policies would face a 16 per cent premium rise to switch to better cover.

Health fund comparator service iselect says during the 2017 calendar year, just under 10% of all private health insurance policies it sold included a budget level of hospital cover (around 9,300 policies).

Scott Wilson, iSelect Managing Director & CEO says a third of iSelect's customers are from regional or country areas and opt for public-hospital only policies because they don't have access to a local private hospital but want to choose their own doctor.

Budget hospital polices do encourage more people to take out private health insurance, particularly the young and this helps to keep premiums down by spreading out the costs over a greater number of policy holders, Scott Wilson says.

A Finder.com survey of 1,300 Australians with private health insurance found 48% of Australians would make radical changes to their private health insurance cover if premiums increase by more than 4% in April.

One in four (27%) with private health insurance plan to change health insurers to get a better deal, while 12% will make a clean break from their cover and ditch it altogether.

A further 9% will ditch their extras cover and stick with hospital only cover to keep costs down.

A massive 60 per cent of young people aged 24 - 38 said they would switch or ditch their cover if premiums go up by 4% in 2018.

Victorians would be quickest to switch or ditch if there are price rises (50%), followed by Queenslanders (49%) and those from New South Wales (48%).